If Bitcoin Is Too Valuable to Spend, How Can It Ever Become Money?

It has been another wild week for Bitcoin, but, even at that, one is worth about $38,000 today (Friday). That price still makes the crypto quite valuable, something that die-hard crypto fans have been eager to point out.

Nothing in the code impacts the value of Bitcoin. However, that in itself may provide an answer to the question, “How can Bitcoin become legal tender if it becomes too valuable to spend?”

Even with the ups and downs that Bitcoin has seen over the last few weeks, over the long haul, the value of the cryptocurrency certainly has appreciated. In 2008, Bitcoin was little more than an idea and traded at zero. Since then, a lot has happened. At even $38,000, that is an impressive performance for any asset.

Bitcoin Is Not Intended to Be Just Another Asset

Bitcoin is intended to be a form of global money, far from being just another asset. There are differing schools of thought and depending on whom you talk to, the crypto will either become the new medium of exchange for every purchase or a medium of settlement for other forms of money.

It may be somewhat like the dollar is now, money that banks can hold in reserve accounts at the Federal Reserve. Bitcoin has to be something that does more than just gain in value, it has to be useful as a tool for making purchases by people.

Whether Bitcoin and others like it are money is akin to an exercise in Scholasticism. For some people, Bitcoin is money now. There are numerous transactions taking place where Bitcoin is appropriate tender. In 2011, in Sweden, there were fewer than 12,000 transactions in a 24-hour period. Six years later, that number had grown to 300,000, where it sits today.

Although the number of transactions in the country has plateaued, the value of Bitcoin has kept rising from under $2,000 five years ago to what it is today. Granted, there is a great deal of volatility, but the value is up considerably. As money, Bitcoin has become more valuable, but it has not become more useful.

Perhaps the usefulness of Bitcoin has been limited by design. Those in favor of Bitcoin as the future of money argue that, unlike the U.S. dollar, there is not a central bank that answers for Bitcoin, nor manages to screw it up.

However, there is a governing structure behind Bitcoin. It is as real and as clear, as that found at the Federal Reserve.

The U.S. Federal Reserve has adopted a code called, “Goals and Monetary Policy Strategy.” This code Approximately once every decade, the code is updated. At the moment, the code as well as the Fed believe that dollars should lose value when compared to other commodities of about two percent per year.

The code that generates Bitcoin is capped at 21 million. By design, Bitcoin is supposed to become increasingly valuable. Yes, the code can be changed, but, as it is with the Fed, there must be a change in the culture. The code is one thing, convincing people to use it is a different matter.

With this being the case, there is a tendency for people to encourage each other to keep their Bitcoin and never sell. The term used to describe this action is “hodl”.

Those that do hodl get richer, but not because of transactions. This is good for Bitcoin but becomes a problem for Bitcoin the money. This is a challenge as old as money itself.

Nobel-prize-winning economist Robert Mundell, who died recently, documented quotes such as “Full-bodied coin, the pride of Athens are never used, while mean brass coins pass from one hand to another”. Through the years, documented quotes led to a maxim which is attributed to a 16^th-century English merchant, which reads, “Poor quality money will eventually drive high-quality money out of circulation. To the owners of Bitcoin, this says it all. Why spend a commodity that only becomes more valuable over time?

The code and culture of Bitcoin are designed to eventually eliminate it from circulation. Hodlers will be left with a problem. If the code is changed or sold, the asset will lose value. Hodl, and maintain the code, and the asset will appreciate.